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Short Notes on the Primary Securities Market

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Primary securities market:

The primary market for securities is the new issues market which brings together the “supply and demand” or “sources and uses” for new capital funds. In this market the principal source of funds is the domestic savings of individuals and businesses; other suppliers include foreign investors and governments.

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The principal uses of funds are: the long-term financing of the investment in housing (mortgages), the long-term investment of corporations and other businesses, and the long-term borrowing of government.

The ultimate suppliers of funds are those sectors with a surplus of current income over expenditure (savings); and these funds flow to their ultimate users, namely, economic units which issue securities to finance a surplus of expenditures over their current incomes.

In a highly developed capital market by far the largest proportion of individuals’ sayings reaches the new issues market indirectly via a financial intermediary. For example, the savings of most individuals are channeled to an ultimate user, say a corporation desiring to finance an expansion of its productive facilities, via an investment company or a similar institution.

Moreover, most individual investors are unfamiliar with the new issues market and its institutions, such as underwriters and selling syndicates which serve as middlemen between the corporate demanders of funds and the individual investors and financial institutions which supply the funds. To most investors the term securities market is synonymous with the “stock exchange”.